Design or Incompetence?

James Kwak over at Baseline Scenario has an interesting post about Citibank badly mishandling a marketing promotion it offered, in which you’d get two hundred dollars if you opened an account or moved more money into an existing account. He also discusses Paul Kiel’s troubling new ProPublica piece, which details how some banks are violating the new rules on mortgage modifications. The question James asks is whether this type of behavior can generally be attributed to “garden-variety incompetence” or “sinister design.” He also suggests that there might be something in-between the two, something he calls “incompetence through conscious inattention.”

I like that idea of “conscious inattention” (in effect, people higher up don’t worry about whether certain things are being done by the book because it’s not costly if they aren’t done by the book). And when it comes to things like messing up mortgage modifications, I wouldn’t be shocked if there was some element of design at work, since banks are (for sometimes inscrutable reasons) often hesitant to modify mortgages even when it would seem to be in their interest. But, just to keep the anecdote flow going, a recent experience I had with a marketing promotion makes me think that incompetence, or what you could call bad design as opposed to sinister design, is often a remarkably powerful force.

I’m not going to disclose the name of the company or the exact nature of my problem, because the customer-service person I dealt with ended up coming up with a way to tinker with the system to help me out, and I don’t want her to get in trouble. But a good analogy would be this: imagine the phone company was offering to install a new phone line in my apartment and give me a new phone for free. I took them up on the offer, but said that I had bought my own phone, because I wanted an upgraded version of the one they were going to give me. So all I needed them to do was install the line, and they could just keep the phone they were going to give me. At that point, bizarrely, the customer-service person said that if I wanted to use my own phone, the installation would no longer be free, but would cost fifty dollars.

Now, the economics of this made absolutely no sense. I had purchased my “phone” from an authorized retailer. The company reaped no economic benefit from me using their device rather than one I bought on my own—the money they make is all on the monthy service bill. In fact, it cost them less for me to use my own device, since they were going to get to keep the one that they were going to give me. Yet they wanted to charge me an extra fee in order to do that.

Now, there was no clever back-end strategy behind this. It was simply a result of the way the system was programmed, and the fact that very few people, apparently, ask to use their own “phone.” (That’s understandable, since it’s obviously much simpler to just have everything delivered and installed at once, and the company-provided device works perfectly well.) This produced an absurd result—everybody was worse off, and the customer was deeply annoyed. As I said, the customer-service person was able to find a workaround in the system, which ensured that I didn’t have to pay anything and that the company was able to take back its device, saving both of us money. But had she not been diligent—and had I not been persistent—everyone would have lost. And that’s the definition of a promotion that’s been incompetently designed.

James Surowiecki is the author of “The Wisdom of Crowds” and writes about economics, business, and finance for the magazine.